US tech earnings preview

The US tech rally goes on, with the Nasdaq 100 reaching new highs in the first half of the year. We look at some of the big names reporting earnings in the next few weeks.

Source: Bloomberg

Netflix (Q2 earnings 16 July)

Netflix is expected to report earnings of 88.8 cents per share, and revenue of $3.9 billion, up 261% and 41% year-on-year respectively. Having seen its shares double since the beginning of the year, there will be more than a few investors questioning whether the rally can continue.

Subscriber growth of course remains the key metric, but of interest will be the content budget, with recent reports suggesting that the firm will spend as much as $13 billon on original programming for 2018. This is far in excess of the $8 billion planned as of last October, and would represent a huge increase for Netflix and put it far ahead of rivals. HBO and CBS combined spent $6.5 billion in 2017, so Netflix will be spending double this next year.

Alphabet (Q2 earnings 23 July)

The earnings of Alphabet's Google will need to cover the important areas of cloud computing, YouTube and hardware. Cloud computing arguably made Amazon into the web giant it is today, and it may well help Google further along the road to a $1 trillion valuation. Combined with hardware, the division produced revenue of $4.4 billion for the first quarter (Q1) of this year, up from $3.2 billion a year earlier.

YouTube remains the engine of growth however, and the solid growth in creators earning six figures on the platform reveal why Google expects further growth from this in the years to come. Alphabet is expected to report 9% in growth for earnings this quarter, to $12.22 per share, while revenue is forecast to grow 22.6% to $25.6 billion.

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Facebook (Q2 earnings 25 July)

Facebook, the social media giant, is expected to report revenue growth of 42.7% for the quarter, to $13.3 billion, while earnings per share (EPS) are expected to be $2.03, up 31.6% year-on-year. Management has already flagged that revenue grew across all regions and market segments, suggesting it expects further good growth.

Operating expenses are forecast to rise by around 50% for 2018 overall, as it looks to bolster security. Fortunately expenses growth usually comes in at the low end of forecasts, so this is one area that may well help the stock in the wake of earnings. Finally, as with all social media, the number of active users remains crucial, with Q1 having seen 13% annual growth, to 2.2 billion.

Amazon (Q2 earnings 26 July)

The acquisition of Pillpack confirms Amazon's ambitions to move into the pharmaceutical space, and it continues to reap the combined rewards of Whole Foods and its growing army of Prime members. The discount for Whole Foods purchases for Prime members was widened to ten additional states in June, reinforcing Amazon’s desire to build on the self-reinforcing loop of these two businesses.

Its web services division now accounts for a third of revenue, at around $300 billion. Amazon is forecast to report EPS of $4.99, up 159% over the year, and a 40.7% rise in revenue to $53.39 billion.

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Twitter (Q2 earnings 27 July)

Twitter has certainly taken the market by surprise, its shares staging a remarkable turnaround so far in 2018. It has even joined the S&P 500, requiring plenty of index trackers and fund managers to buy the stock. Earnings are expected to rise 104% to 16.4 cents per share for the quarter, while revenue rises 21.5% to $697 million.

Five consecutive quarters of double-digit user growth have helped to restore the firm’s image, and a crackdown on fake accounts and abuse has helped drive new joiners. Advertising revenue has picked up as a result, as firms see the benefit of buying ad space on the platform.

Apple (Q3 earnings 31 July)

Apple is expected to report a 15.2% rise in revenue for the quarter, to $52.31 billion, and a 29.4% rise in EPS to $2.16. Higher average selling prices for iPhones has helped the giant to maintain revenue growth despite a slowdown in actual phone sales.

Meanwhile, watch out for the impact of a stronger US dollar on performance, which may well hit guidance for the coming quarter. A record low for the rupee and the recent weakening of the yuan will hurt sales in those countries, although the impact may not be felt in this quarter’s numbers. Also keep an eye on music and video revenues, which should become a bigger force for Apple in coming years.

Nasdaq 100 technical view

Momentum still remains a potent force in US tech stocks, as shown by the 12% rise in the Nasdaq 100 so far this year versus a 4% return for the broader S&P 500. New record closing highs were seen in June, and the current recovery in the index from weakness at the end of June could see fresh highs in very short order.

A break below recent lows around 6950 would spark a broader sell-off, but so far this year dips towards the 200-day simple moving average (SMA), currently 6677, would represent powerful buying opportunities. Tech stocks have been seen as something of a haven from trade wars, along with US small caps, which also helps to account for why they have outpaced the Dow Jones and S&P 500 so far this year.

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